The Internal Revenue Service (IRS) has officially released its annual tax inflation adjustment figures for the 2025 tax year. These adjustments include changes to gift and estate tax exemptions which play a critical role in tax planning strategies for individuals and families. As these updates reflect increases tied to inflation, taxpayers should review the new thresholds to understand how they may impact financial planning. As tax laws and exemption limits evolve, staying informed about these changes helps taxpayers make smarter decisions to minimize tax liabilities and preserve wealth for future generations.
Annual Gift Tax Exclusion
Starting January 1, 2025, the annual gift tax exclusion will increase. This allows individuals to give up to $19,000 per recipient within the calendar year without triggering a gift tax. Gifts exceeding $19,000 to any single recipient in 2025 will require the donor to file a gift tax return. However, taxes may not necessarily be owed depending on the donor’s lifetime exemption limit.
For married couples filing jointly, the annual exclusion doubles, allowing them to gift up to $38,000 per recipient tax-free. This adjustment provides more flexibility for individuals and couples to share wealth with family and loved ones while staying within tax-free thresholds, making it a valuable tool for financial planning and wealth transfer strategies.
Estate Tax Exemption
Additionally, the federal estate tax exemption for 2025 increased to $13,990,000 per individual, up from $13,610,000 in 2024. For married couples, this exemption doubles to $27,980,000. This means individuals are able to gift or transfer up to $13,990,000 during their lifetime or at death without incurring federal estate or gift taxes. Furthermore, estates valued below this threshold will not owe federal estate taxes.
While the majority of estates in the U.S. fall well below these exemption limits, wealthier taxpayers should be aware of significant changes on the horizon. Starting in 2026, the estate tax exemption is set to revert to roughly half of its 2025 value, potentially subjecting more estates to federal taxes and resulting in higher tax liabilities. For those planning their estates, these adjustments highlight the importance of proactive tax and financial planning to maximize exemptions and minimize tax burdens.
The Tax Cuts and Jobs Act (TCJA) Is Coming to an End
At the end of 2025, the Tax Cuts and Jobs Act (TCJA) is scheduled to dissolve unless Congress intervenes. This change will have a substantial impact on taxpayers, particularly those with high-net-worth estates or significant lifetime gifts. If the TCJA expires as planned, the federal estate and gift tax exemptions will revert to their pre-2018 levels (approximately $5 million per individual). This marks a significant decrease from the current exemptions of $13,990,000 per individual and $27,980,000 for married couples in 2025.
Without congressional action, the lower exemption limits will take effect on January 1, 2026, subjecting many estates to federal taxes and increasing the likelihood of higher tax liabilities for wealthy families. To prevent this rollback, lawmakers would need to pass legislation to adjust or extend the current exemption thresholds before December 31, 2025.
For taxpayers, this looming deadline highlights the importance of proactive estate and financial planning. Those who wish to take advantage of the higher exemption limits should consider strategies like gifting or transferring wealth before the TCJA sunsets. By acting early, individuals and families can minimize potential tax burdens and protect their wealth for future generations.
Consider 2025 Tax Planning for Your Estate
Partnering with an estate planning attorney early is crucial to developing a comprehensive strategy that takes full advantage of the current federal estate and gift tax exemptions before they potentially decrease in 2026. Experienced attorneys help you evaluate your financial situation, identify assets to transfer, and structure your plan to minimize tax liabilities while aligning with your long-term goals.
Act now and explore tax-efficient strategies such as lifetime gifting, establishing trusts, or other wealth transfer methods to ensure you make the most of the historically high exemption limits. Additionally, an attorney helps you stay compliant with IRS regulations, properly document your transactions, and navigate the complexities of estate tax laws that may vary based on your state of residence.
Starting this process sooner rather than later provides more time to make informed decisions, adapt your plan if tax laws change, and avoid a last-minute rush as the 2025 deadline approaches. Contact us today to get started!
Bromlow Law, PLLC and Laura L. Bromlow, are dedicated to the practice of Elder Law and Estate Planning. Our practice focuses solely on working with clients in these and closely related legal fields. Laura L. Bromlow is a Certified Elder Law Attorney with the National Elder Law Foundation. Bromlow Law, PLLC strives to enhance communication among family members and loved ones and to keep them all out of conflict so they can stay out of court. We want to help you keep your close circle safe!
Please contact our office today at (281) 665-3807 to schedule a free consultation to discuss your legal matters. We look forward to the opportunity to work with you.